Beschreibung:
This paper investigates the contagiousness of safe asset shortages as an implication of the secular stagnation hypothesis. Our motivation is to quantify the degree of financial contagion of safe asset demand among developed and emerging markets. We know that the insufficient supply of safe assets in developed economies led to increasing demand for risky EM Bonds. However, lower yields might not be observed in Emerging Economies due to expected inflation. To investigate this idea, we proxied expected inflation via a new variable called the Marginal Impact of Inflation (MII). Our dataset consists of 2-year and 10-year generic government yields, and we analyzed the reaction of developed and emerging economies to the United States and the United Kingdom’s safe asset demand. Our findings confirm that demand for US and UK safe assets shows the contagious impact for Developed Economies, not for Emerging Economies. Additionally, longer yields show stronger statistical evidence than shorter yields, as suggested by the secular stagnation hypothesis. According to empirical results, expected inflation is statistically insignificant for long-term and short-term yields for emerging economies. Thus, we can conclude that the Secular Stagnation Hypothesis is the problem of Developed Economies rather than Emerging Economies in that manner